ABUSE OF DOMINANCE: THE INDIAN APPROACH
Submitted to:
Mr. Mohd. Atif Khan
(Faculty In-charge of Competition Law)
Submitted by:
Anamika Ballewar
Roll No.: 12
B.A. L.L.B. (HONS.)
Semester VII
Section: B
Date of Submission: 05.10.2017
Hidayatullah National Law University
Uparwara Post, Abhanpur, New Raipur – 492002 (C.G.)
DECLARATION
I hereby declare that the project work entitled “Abuse of Dominance: The Indian Approach”
submitted to Hidayatullah National Law University, Raipur, is a record of an original work
done by me under the able guidance of Mr. Mohd. Atif Khan, Faculty In-charge, Competition
Law, Hidayatullah National Law University, Raipur.
Anamika Ballewar
Roll No.: 12
Section: B
Semester: VII
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ACKNOWLEDGEMENTS
I feel highly elated to work on the topic “Abuse of Dominance: The Indian Approach”. This
research venture has been made possible due to the generous co-operation of various persons.
To list them all is not practicable, even to repay them in words is beyond the domain of my
lexicon.
May I observe the protocol to show my deep gratitude to the venerated Mr. Mohd. Atif Khan,
Faculty In-charge, for his kind gesture in allotting me such a wonderful and elucidating research
topic. His consistent supervision, constant inspiration and invaluable guidance have been of
immense help in understanding and carrying out the nuances of the project report.
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TABLE OF CONTENTS
DECLARATION.......................................................................................................................... 1
ACKNOWLEDGEMENTS .......................................................................................................... 2
1. INTRODUCTION ................................................................................................................. 5
OBJECTIVES ........................................................................................................................ 6
LITERATURE REVIEW ...................................................................................................... 7
RESEARCH METHODOLOGY .......................................................................................... 5
HYPOTHESIS ...................................................................................................................... 5
RESEARCH QUESTIONS................................................................................................... 5
MODE OF CITATION ......................................................................................................... 5
2. THE LEGAL FRAMEWORK........................................................................................... 7
3. DETERMINATION OF RELEVANT MARKET ............................................................ 8
4. ESTABLISHING DOMINANCE ..................................................................................... 9
5. DETERMINATION OF ‘ABUSE’ AND THE RESULTANT SANCTIONS ............... 10
5.1. Penalty Guidelines..................................................................................................... 10
5.2. Concept Of Turnover ................................................................................................ 10
6. DIVISION OF ENTERPRISE ENJOYING A DOMINANT POSITION – YET TO BE
TESTED IN INDIA ................................................................................................................. 11
7. TAKEAWAYS FROM GLOBAL TRENDS .................................................................. 12
8. CONCLUSION ................................................................................................................
13
REFERENCES ......................................................................................................................... 14
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1. INTRODUCTION
India began its journey of transformation from a closed economy to a liberalized market
economy in 1991. India has since 1991, grown tremendously as a market and economic
powerhouse but when competition law was introduced in India in the form of the Competition
Act 2002 there were severe resistance from the Indian industry which claimed that Indian
market had not achieved the scale ad dynamics which merit a modern competitive law regime
being enforced – although, the number of complaints and investigations under the Indian
competition regime since 2009 has provided the contrary.
The Act finally came into effect in a phased manner, with significant amendments in 2007. The
provisions relating to anti-competitive agreements and abuse of dominance came into effect in
May 2009 and the provisions in relation to merger control came into effect in June 2011.
The Competition Commission of India (CCI) is the regulatory body is the regulatory body
established under the Act to administer the provisions of the Act and the Competition Appellate
Tribunal in the appellate body. The substantive test and the benchmark for analysis under the
Act is to prohibit practices which have an appreciable adverse effect on competition in India.
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OBJECTIVES
• To study the meaning of “Abuse of Dominance” as understood across different
jurisdictions and to arrive at a definition for the purpose of this research work.
• To analyse the concept of ‘Relative turnover’ and response of Competition Commission
of India and COMPAT with comparison to other mature Jurisdictions
RESEARCH METHODOLOGY
The mode of writing this research paper is doctrinal in nature. Secondary and Electronic
resources have been largely used to gather information and data about the topic. Books and
other reference as guided have been primarily helpful in giving this project a firm structure.
Websites, dictionaries and articles have also been referred. Footnotes have been provided
wherever needed, to acknowledge the source.
HYPOTHESIS
It is hypothesized by the researcher that the existing concept for Abuse of Dominance under
Competition Law in India is capable to avoid such problems and the penalties levied are
justifiable. Also that Competition Commission of India has already evolved into a mature
framework.
RESEARCH QUESTIONS
• How is Abuse of Dominance determined and understood in light of the provisions under
the Competition Act, 2002?
• What is the legal framework pertaining to determination of Abuse of Dominance in
India and the same under the jurisdiction of EU and USA?
• Whether there is a reasonability among the penalties levied by the commission and
whether it has grown into a matured framework?
MODE OF CITATION
A uniform mode of citation has been followed throughout the project.
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LITERATURE REVIEW
• Vinod Dhal, Competition Law Today: Concepts, Issues and the Law in Practice, Oxford
University Press
This book deals with the concept of extra-territorial jurisdiction under different jurisdictions
such as US, UK and EU jurisdiction.
“At one time, the question of federal jurisdiction was terribly important to US competition law,
with many leading cases turning on whether a restraint sufficiently affected interstate
commerce. Those days are over; today, as a practical matter, US conduct sufficiently harmful
otherwise to violate the antitrust laws could rarely, if ever, be defended on grounds that the
conduct and its effects were too localized.”
• Richard Whish and David Bailey, Competition Law, Oxford University Press
Whish and Bailey's Competition Law is the definitive textbook on this subject. The authors
explain the purpose of competition policy, introduce the reader to key concepts and techniques
in competition law and provide insights into the numerous different issues that arise when
analysing market behaviour. Describing the law in its economic and market context, they
particularly consider the competition law implications of business phenomena, including
distribution agreements, licences of intellectual property rights, cartels, joint ventures, and
mergers. The book assimilates a wide variety of resources, including judgments, decisions,
guidelines, and periodical literature. An authoritative treatment of competition law is paired
with an easy-to-follow writing style to make this book a comprehensive guide to the subject,
regularly used in universities, law firms, economic consultancies, competition authorities, and
courts.
• T. Ramappa, Competition Law, Oxford University Press
The book makes a detailed study of key issues including anti-competitive agreements, abuse of
dominant position, and combinations (acquisitions and mergers). It further analyses the roles of
authorities such as the Competition Commission of India, the Director-General, and the
Competition Appellate Tribunal in enforcing the provisions of the Act. The book also
undertakes a comparative study of competition law in the US, UK, and EU with emphasis on
important judgments.
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2. THE LEGAL FRAMEWORK
The regulations of abuse of dominance is the important pillar in India’s competition law policy.
Section 4 of the Act deal with the regulation of abuse of dominance i.e. the regulation of
unilateral conduct. The Act prohibits the abuse of a dominant position by any ‘enterprise’ or
group and defines a dominant position as a position of strength enjoyed by an enterprise in the
relevant market in India, which enables it to operate independently of the competitive forces
prevailing in the relevant market or affect its competitors or consumers or the relevant market
in its favour. Therefore, in India, determination of ‘dominance’ is not a function of arithmetical
formulae but a qualitative assessment of the prevalent market dynamics and the relative position
of strength enjoyed by the market participants. The Act is equally applicable to both: private
enterprises and the government bodies and their departments acting in their commercial
capacity. The CCI’s ruling, where it imposed a penalty of INR17,730 million on Coal India
Ltd1. For abusing its dominance by imposing unfair terms in its fuel supply agreements 2, has
given a further fillip to the non-discriminatory of the Act.
The Act covers in its ambit both, exclusionary as well as exploitative abuses and Section 4(2)
of the Act provides of a list of prohibited abuses, including predatory pricing, unfair pricing,
leveraging etc. Further, barring a limited defence of meeting competition in relation to
imposition of unfair or discriminatory prices or conditions, the Acts allows for no other
exceptions to an abuse of dominance violation. This approach is in stark contradiction to the
European Union competition law, where the objective justification or the efficiencies has been
held to be a valid defence for a dominant enterprise to engage in abusive conduct.
The ingredients to establish a section 4 violation are: (a) defining the relevant market (b)
determining whether the entity under investigation commands a dominant position in the
relevant market and (c) determining whether such dominant entity has indulged in any activity
which amounts to abuse of its dominance.
While determining dominance, the CCI is required to consider the factors listed in Section 19(4)
of the Act, including market share of the enterprise, size and resources of the enterprise, size
1
Coal India Limited is a state-owned enterprise which enjoys a monopolistic position due to national legislation
in the sector.
2
Maharashtra State Power Generation Company Ltd v. Mahanadi Coalfields Ltd. and Coal India Limited, Case
No.3,11 & 59 of 2012.
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and importance of the competitors, economic power of the enterprise, vertical integration of the
enterprise or sale or service network of such enterprises, dependence of consumers on the
enterprise, etc.
Section 4 of the Act imposes strict liability and the Act is silent on whether there is a
requirement to assess the actual appreciable effect on competition in the market. However, an
analysis of the abuse of dominance cases adjudicated by the CCI to date reveals that’s the CCI
has set fairly high standards embarked upon a detailed analytical approach I determining the
relevant market and establishing dominance. As a result, the CCI undertakes a market effect
analysis before coming to its conclusion on whether the conduct complained about amounts to
an ‘abuse’.
3. DETERMINATION OF RELEVANT MARKET
The small but significant Non-transitory increase in price (SSNIP) test has been traditionally
used by the competition law regulators for delineating the boundaries of the product market.
However, its application has often been questioned on account of an inherent price distortion
in markets dominated by single or a handful of enterprises. There are also limitations on the
application of the SSNIP test in abuse of dominance cases. In India, the SSNIP test has been
used by CCI on multiple occasions but its approach has not been uniform. The Indian market
particularly poses intrinsic issues which make the application of the SSNIP test difficult. For
instance, lack of market data, difficulties in conducting consumer surveys and determining an
appropriately representative sample group, extreme price sensitivity of the consumers etc.
Furthermore, the characteristics of certain sectors do not permit the application of the SSNIP
test, particularly in those areas where quality of service, and not price, exerts a greater influence
on customer’s choice.
In the absence of economic tests applicable in the Indian market, determination of ‘relevant
market’ are often guided by pure public perception and the wisdom of CCI members, without
statistical data to support the same. Therefore, while in the DLF order case, the CCI restricted
the relevant market to a mere suburb of the National Capital Region, in the Coca Cola Case 3,
3
Consumers guidance Society v. Hindustan Coca Cola Beverages Ltd. and INOX Leisure Pvt Ltd. Case No. 99 of
2009.
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the CCI held that relevant geographical market cannot be confined to the closed market inside
the premises of multiplexes and considered the relevant market to be the market of all multiplex
theatres across India. In the BCCI Case4, the BCCI was alleged to be abusing its dominant
position in relation to grant of franchise rights, media rights, sponsorship rights, and commercial
contracts related to the organization of the Indian Premier League. However, the CCI arrived at
a simplistic definition of the relevant market as the ‘market for the organization of private
professional cricket leagues/events in India’. By contrast, in the Hockey India Case5, the CCI
undertook a far more detailed analysis and considered it appropriate to define the relevant
market on the basis of each specific allegation against the association. It is notable that in the
BCCI Case, although the CCI’s order states that it has employed the SSNIP test for the
determination of the relevant market, the decision did not present any empirical analysis to
indicate how the SSNIP test was applied and what the conclusions of its analysis were.
4
Surinder Singh Barmi v. Board for Control of Cricket in India, Case No.61of 2010 5
Dhanraj Pillay and others v. M/s Hockey India, Case No. 73 of 2011.
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4. ESTABLISHING DOMINANCE
The Act does not prescribe any bright line market share test for the determination of dominance.
In the cases heard by the CCI till date, there has been no guidance as to the percentage of market
shares that may indicate the likelihood of being dominant. Asian antitrust jurisdiction such as
Singapore and Malaysia follow the approach where an enterprise enjoying a market share over
60% I likely to be dominant in the relevant market.
While market shares of dominant enterprises are considered as an important factor in CCI’s
assessment, none of the cases decided so far specify a ‘magic number’ that can lead to a
determination of dominance. Market shares of an enterprise constitutes only one amongst the
several factors that the CCI is required to take into consideration to assess dominance under
Section 19(4) of the Act. While in the Shri Sonam Sharma v. Apple Inc. USA and Ors5, The
CCI regarded market shares to be the ‘screening criterion’, CCI’s initial decisions in the DLF
Order Case establish the market shares are not the sole criterion for assessing dominance.
While a magic number is not pre-requisite, in terms of allocating burden of proof and allowing
enterprises an opportunity of being prepared and aware of their increased obligations as
5
Case No 24 of 20111
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‘dominant’ enterprises, it would be useful for the CCI to prescribe a several mature antitrust
jurisdictions.
5. DETERMINATION OF ‘ABUSE’ AND THE RESULTANT
SANCTIONS
5.1. PENALTY GUIDELINES
Competition jurisdiction in India suffers from the absence of penalty guidelines which are
intended to elucidate and provide guidance as to how the CCI ought to calculate penalties for
abusive conduct. The CCI has the power to impose highest economic penalties in India – a
penalty upto 10% of the average turnover of infringing enterprise for the preceding three
financial years for breach of provisions relating to abuse of dominance. The trend so far has
been that the CCI has applied differential standards for imposing penalties, without providing
any coherent reasons and justification related to the process or formulae adopted to calculate
the penalties imposed. For instance, the CCI imposed a penalty of 7% in the DLF order Case
while it imposed a penalty of 3% in the Cal India case. Therefore, for companies in India, the
calculation of penalties remains a highly contentious issue.
Asian antitrust jurisdiction such as Pakistan and Singapore have guidelines on the imposition
of financial penalties. Most recently, Malaysia has also issued draft penalty guidelines which
are presently undergoing a public review process. However, in India, contrary to the
International norms, the penalties imposed by the CCI are completely at its own discretion.
Notably, the COMPAT has attempted to provide the guidance on the manner in which the
penalties ought to be calculated, but its guidance does not find any basis in the legal provision.
Pertinently, in several instance, while upholding the decisions of the CCI. The COMPAT has
significantly reduced the quantum of penalty imposed on the parties and also cited reasons for
such reductions in penalties. This reiterates the grave necessity for the CCI, firstly to have the
benefit of lucid and standard methodology guiding the imposition of penalties and secondly,
give detailed reasoning in its orders for arriving at a particular penalty amount.
5.2. CONCEPT OF TURNOVER
Following from the discussion above, a related topic of connection has been the ‘turnover’
which ought to be taken into account while levying financial penalties under the Act.
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Companies in India that are active across multiple product lines are often housed under a single
entity and such companies lack clarity as to how CCI calculates penalties for infringing
conduct, this is a matter of grave concern and uncertainty.
The Act provides that a maximum of 10% of the average turnover for the preceding three years
can be levied but fails to clarify whether ’turnover’ for such imposition of penalty is only the
relevant turnover i.e. the turnover that can be attributed to the business in which the abuse of
dominance takes place or the general overall turnover of the contravening enterprise.
The concept of relevant turnover emerged in India for the first time by COMPAT in the
Aluminium Phosphide tablets case6. The opportunity came before the COMPAT in an appeal
against the decision of the CCI punishing three aluminium phosphide tablets manufacturers for
bid rigging under section 3(3) of the Act. The CCI has levied a total penalty of Rs. 3170 million
in this case but this penalty was significantly reduced by the COMPAT. In its analysis, the CCI
did not give any reasons while imposing the penalty and calculated the penalty on the total
turnover of the enterprise. The COMPAT held that CCI should only have considered the
‘relevant turnover’, while calculating the penalty since infringing enterprises in this case were
multi-product companies. Further the COMPA reprimanded the CCI for lack of formal
reasoning in it formal orders and elucidated that the CCI must consider the doctrine of
proportionality while imposing penalties. The COMPAT also observed that the adjudicatory
role of the CCI necessitates that it considers necessary factors such as the financial health of
the company, its reputation and the likelihood of the company being closed down due to harsh
penalty, before coming to a particular amount which is linked to the enterprise turnover. The
COMPAT’s order was then challenged at Supreme Court, which upheld the decision of the
COMPAT.
6. DIVISION OF ENTERPRISE ENJOYING A DOMINANT
POSITION – YET TO BE TESTED IN INDIA
The Act does not seek to prohibit the existence of dominance but only the abuse of dominance;
however, the CCI does have the power to order division of dominant enterprise under section
6
Appeal No. 79 ,80,81 of 2012
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28 of the Act, to ensure that such dominant enterprise will not abuse its dominant position.
While the CCI has not yet used this power either as a curative or a preventive measure, it is
interesting that such a measure finds a place in the Act. Unlike mature antitrust jurisdictions,
European Union and United States, there is extremely limited guidance as to how the CCI may
order and implement a division of a dominant enterprise. Given the complex regulatory
environment in India, such an approach remains untested and will undoubtedly be accompanied
by a host of other regulatory issues, for instance, uncertainly in the approach that the SEBI
(Securities and Exchange Board of India) is likely to adopt to disinvestments/division of public
listed enterprises.
7. TAKEAWAYS FROM GLOBAL TRENDS
Mature antitrust jurisdictions have assessed abuse of dominance across a varied spectrum of
abusive conduct across sectors but the provisions relating to abuse of dominance in India are
in a state of evolution. There is much for the CCI to learn in terms of a focal point and
enforcement priorities from landmark precedents globally.
The decision in the Astra Zeneca Case7, wherein Astra Zeneca was found guilty of abusing its
dominating position by misleading patent authorities and manipulating the regulatory system
to prevent generic competition against its anti-ulcer medicine, holds significant value in India
given the CCI’s special focus towards the pharmaceutical sector and its quest to ensure that
generic manufacturers are not illegally kept away from the markets.
Rebates and discounts are type of abuses which the CCI is yet to deal with in detail as abuse of
dominance cases relating to rebates have not been tested in India so far – the CCI has much to
imbibe from the decision in Intel Case8 where Intel was found guilty of abusing its dominant
position by implementing a series of conditional rebates to computer manufacturers and
European dealers by taking measures aimed at preventing or delaying the launch of computers
based on competing products.
7
Case C-457/10 P.
8
COMP/C-3/37.990
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8. CONCLUSION
In the years to come, abuse of dominance in technology, emerging industries and intellectual
property pose challenging competition law concerns which will mandate the use of flexible
competition policy to adapt to the manner in which companies compete and conduct their
business practices. Given the global nature of these sectors with national territories not
constituting significant trade barriers, competition policy is required to address these aspects
as a cohesive body of principles which found reflection in each jurisdiction’s national
competition law. For instance, the CCI has recently ordered an investigation against the
Ericsson group9 ( a global player in telecommunications sector) on the basis of two complaints
claiming that the Ericsson Group, contrary to its obligation to grant licenses for its Standard
Essential Patents on FRAND terms, has been imposing unfair terms for licensing its patents
and demanding exorbitant royalties. Any decision by CCI in this regard will undoubtedly cause
a ripple effect and will affect the way other competition regulators approach the Ericsson
Group’s business practices in their respective jurisdictions – it is therefore imperative that the
CCI’s approach to these sectors and their specific issues develops in a manner which is
harmonious with the approach of other mature jurisdictions. The CCI would therefore need to
develop competition concerns arising from abuse of dominance cases in a way, harmonious
with the global precedents.
9
Case No. 50 of 2013 and 76 of 2013
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REFERENCES
BOOKS/ARTICLES REFERRED
• Competition Law Today: Concepts, Issues and the Law in Practice, edited by Vinod
Dhall (Oxford University Press), 2007
• Richard Which, Competition Law, Oxford University Press; 6th Edition; 2009
• Ramappa T, Competition Law in India, Policy Issues and Developments, Oxford
University Press, 2006
WEBSITES
● www.jstor.com
● http://www.cci.gov.in/
● http://www.internationalcompetitionnetwork.org/
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